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Editorial Commentary
VenEconomy : Getting desperate
Despite the fact that oil prices have steadily remained at record high levels, the feeling is that the country is in the midst of a fiscal crisis.
Though there aren’t any official figures to back this up, one can infer that the fiscal situation is more than just tight, by the many signs the Government is showing.
Among the signs we are referring to would be: the implementation of the Financial Transaction Tax which has had a negative effect with regard to inflation; the adjustment PDVSA has made with regard to its payment schedule, now requiring that accounts be paid within 8 days after delivery instead of the 30 days that was previously allowed; delayed loan payments; as well as the President’s statements admitting that funds for the Missions are scarce.
And just recently, the National Assembly has provided yet another sign that the Government is scrapping the bottom of the barrel and squeezing funds out of where ever it can, by announcing that it is thinking about implementing a Tax on “Windfall Profits” to be applied on the oil industry.
Unlike the Financial Transaction Tax which is inflationary, but a big money maker for the Government, generating more than Bs.F.2.0 million a month, a Windfall Profits Tax would not bring in very much since PDVSA is the one that generates almost 90% of all oil revenues in the country. The company already belongs to the State who gets 100% of its profits through royalties, taxes, dividends, and withheld earnings. In other words, a Tax increase would simple cut back on dividends or withheld earnings. So, all a new Tax would be doing is passing resources from one pocket to another, all within the same State.
A Windfall Profit Tax would affect every one of PDVSA’s minority shareholder partners, which are already having their profits taxed by almost 90% between royalties and taxes, the highest percentage in the world.
Since we are talking about minority shareholders, a Windfall Profits Tax would not bring in much revenue, but it would have a high cost in terms of the country’s credibility, and trust in its contracts, and the relevance of its laws, which supposedly are there to guarantee to foreign investors that the rules of the game aren’t going to change, or at least not change for the next 10 years. Besides, this Tax would end up being arbitrary and discretional. For starters, you’d have to start by establishing a point of reference in order to define the parameters which would determine what an acceptable profit level would be. And, of course, the Government would probably set these levels unilaterally.So, if this Tax were to be implemented, it would just be one more negative incentive for investors, driving desperately needed foreign business capital away from Venezuela. Investors will simple take their money and go in search of safer and better opportunities. This price is much too high for the country to pay and it would condemn it to underdevelopment and poverty.
VenEconomy is a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by VenEconomy, on 03/28/2007. Petroleumworld reprint this article in the interest of our readers.
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Petroleumworld News 04/01/08
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